-- Revenues: $2.57 billion
(PRNewswire) — Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500® science and technology solutions company, today reported financial results for the second quarter of fiscal year 2017.Roger Krone, Leidos Chairman and Chief Executive Officer, commented: "Our second quarter performance exceeded expectations, and reflects our focus on delivering strong program performance to our customers while successfully integrating the IS&GS acquisition. Our results year-to-date give us confidence to increase our cost synergy targets for the transaction as well as our full year margin and earnings guidance. We remain committed to leveraging this transformational transaction to deliver value to our customers, employees, and shareholders."
Summary Results
Revenues for the quarter were $2.57 billion, compared to $1.29 billion in the prior year quarter. The current quarter increase was primarily due to $1.37 billion of revenue attributable to the Information Systems & Global Solutions business ("IS&GS Business") acquired from Lockheed Martin during the third quarter of fiscal year 2016.
Operating income for the quarter was $166 million, compared to $75 million in the prior year quarter. Operating margin increased to 6.5% from 5.8% in the prior year quarter. The current quarter results include $67 million of amortization of intangible assets, $16 million of acquisition and integration costs, $9 million of amortization of equity method investments and $6 million of restructuring charges related to the acquisition of the IS&GS Business. The prior year quarter results included $15 million of acquisition and integration costs, $2 million of amortization of intangible assets and $1 million of restructuring charges.
Diluted earnings per share ("EPS") attributable to Leidos common stockholders for the quarter was $0.64, compared to $0.55 in the prior year quarter. Excluding the items mentioned above, non-GAAP diluted EPS for the quarter was $1.04, compared to $0.68 in the prior year quarter. The weighted average diluted share count for the quarter was 153 million, up from 74 million in the prior year quarter primarily due to the issuance of approximately 77 million shares of Leidos common stock to participating Lockheed Martin stockholders in connection with the acquisition of the IS&GS Business.
Defense Solutions
Defense Solutions revenues for the quarter of $1,243 million increased by $458 million, or 58%, compared to the prior year quarter. The revenue growth was primarily attributable to the acquired IS&GS Business and growth in our airborne programs, partially offset by reduced scope and completion of certain contracts.
Defense Solutions operating income margin for the quarter was 5.1%, compared to 7.6% in the prior year quarter. On a non-GAAP basis, operating margin for the quarter was 8.8%, compared to 7.6% in the prior year quarter, primarily due to strong performance on certain contracts and lower indirect costs.
Civil
Civil revenues for the quarter of $875 million increased by $575 million, or 192%, compared to the prior year quarter. The revenue increase is primarily attributable to the acquired IS&GS Business, partially offset by the divestiture of the heavy construction business in fiscal 2016, and reduced scope and completion of certain contracts.
Civil operating income margin for the quarter was 7.5%, compared to 6.7% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 11.0%, compared to 7.3% in the prior year quarter, reflecting favorable adjustments on contracts.
Health
Health revenues for the quarter of $454 million increased by $251 million, or 124%, compared to the prior year quarter. The revenue increase is primarily attributable to the acquired IS&GS Business, partially offset by lower revenues from our commercial health business due to timing.
On both a GAAP and non-GAAP basis, Health operating income margin for the quarter was 16.3%, compared to 8.9% in the prior year quarter, primarily attributable to higher margins on IS&GS contracts.
Cash Flow Summary
Net cash flows provided by operating activities of continuing operations for the quarter were $177 million compared to $72 million in the prior year quarter. The higher operating net cash inflows were primarily due to the timing of billing and collections activities, partially offset by higher payments for taxes and restructuring and integration expenses.
Net cash flows used in investing activities of continuing operations for the quarter were $9 million compared to net cash flows provided of $19 million in the prior year quarter. The $28 million increase in net cash used was primarily due to proceeds from the disposition of a business in the second quarter of fiscal 2016 that did not recur in fiscal 2017 and increased payments for purchases of property, plant and equipment.
Net cash flows used in financing activities of continuing operations for the quarter were $112 million compared to $30 million in the prior year quarter. The higher financing cash outflows were primarily due to repayments of long-term debt and higher dividend payments.
As of June 30, 2017, the Company had $262 million in cash and cash equivalents and $3.2 billion of debt.
New Business Awards
Net business bookings totaled $2.7 billion in the quarter, representing a book-to-bill ratio of 1.0.
Notable recent awards received include:
- Veterans Benefits Administration: Leidos was awarded a multiple-award indefinite-delivery/indefinite-quantity contract by the U.S. Department of Veterans Affairs to continue to provide medical disability examinations for the Veterans Benefits Administration. The contract has a one-year base period of performance, four one-year options, and a total contract ceiling of $6.8 billion, if all options are exercised.
- Defense Threat Reduction Agency: Leidos was awarded a contract by the Defense Threat Reduction Agency ("DTRA") to support DTRA's Cooperative Biological Engagement Program and Cooperative Threat Reduction Program through a worldwide Scientific & Technical Engagement Partnership program. The single-award, time and materials contract has a one-year base period of performance, four one-year options, and a total contract value of approximately $170 million if all options are exercised.
- U.S. Army: Leidos was awarded a task order by the U.S. Army to provide program management solutions to the Department of Defense ("DoD") Biometrics program, including the DoD Automated Biometrics Identification System. The single-award cost-plus incentive-fee contract has a one-year base period of performance, four one-year options, and a total contract value of approximately $132 million , if all options are exercised.
- Intelligence Community: The Company was awarded contracts valued at $225 million , if all options are exercised, by U.S. national security and intelligence clients. Though the specific nature of these contracts is classified, they all encompass mission-critical services that help to counter global threats and strengthen national security.
